D&O coverage on the rise for nonprofits
Faced with a growing list of potential liabilities and risks, an increasing amount of nonprofits are seeking to purchase insurance coverage for their directors and officers, according to underwriters and industry consultants. Whether or not they realize it, nonprofit board members and executives face the same potential risks as their for-profit counterparts. Yet unlike a private or public institution, nonprofits often face greater difficulties fighting claims, mainly because most lack the necessary balance-sheet protection to support litigation.
Liability experts say that as more and more nonprofits gain awareness of their risk exposures, many are seeking advice and looking at coverage options, particularly those that include Personal Umbrella policies. Personal liability coverage is among the top concerns for nonprofit directors and officers, since their own finances are at risk if an organization is sued and lacks insurance to cover damages. Furthermore, the list of possible reasons for claims against nonprofits continues to grow, from government oversight to employment-related matters, civil rights issues, fiduciary-duty breaches, improper conduct of volunteers or employees and fund misappropriation (click here for a look at some entities that could sue a nonprofit). A claim concerning misuse of funds is one of the most common claims made against boards and poses serious risks, since board members can be held liable even if they are not present when a particular funding decision is made. Losing a case and having to pay out against a claim can leave an organization in serious financial hardship and may inhibit their ability to continue operations.
Therefore, nonprofit board members should be sure to examine whether or not there is an existing Directors’ & Officers’ Liability (D&O) policy in place and if not, take the necessary steps to purchase the insurance. D&O coverage is often sold in bundled packages with Employment Practices Liability Insurance.
About the Author
Jennifer Sharkey is a Senior Vice President at WGA. She is responsible for consulting, marketing and negotiating coverages for Directors’ & Officers’ Liability, General Partnership Liability, Private Equity/VCAP, Fiduciary Liability, Fidelity, Kidnap/Ransom & Extortion, Employment Practices Liability and Professional Errors & Omissions Liability.